Almost two decades ago, Jeff Bezos declared that Amazon was not a retail company, stating, “Our business is not what’s in the brown boxes. It’s the software that sends the brown boxes on their way.”
In 2024, his statement applies to a far wider range of companies than the retail giant. There are more than 20 million software engineers worldwide, and more than half of them are working for businesses outside of the technology sector. That percentage is growing rapidly. From retailers and service providers to business analysts and research firms, companies that fail to invest in software quickly fall behind.
But in an increasingly complex and competitive industry, what constitutes a fair hourly rate for custom software development? How much should companies pay? What does a reasonable hourly rate look like?
There are more factors to consider than you might expect.
The Significance of Choosing the Right Software Development Consultancy
Small- and medium-sized companies are less likely to have the internal resources to maintain a complete in-house development team. Developer hourly rates will continue to increase in 2024, and the marketplace for software will grow more complex and competitive.
Organizations looking to reap the benefits of custom software development without the investment of starting an in-house development team have options. From large software development consultancies to nearshore firms, individual freelance developers, and everything in between, there are pros and cons to consider.
Six Types of Custom Software Development Companies in 2024
While there is a range of custom software development consultancy options available in the 2024 market, they typically fall into one of six categories: Enterprise class, big business class, mid-market class, small business, freelancers, or outsourced offshore shops. Hourly rates, skill level, and breadth of experience will vary across these options.
Each of these has its own advantages and disadvantages, as well as different price points to leverage.
Enterprise Class Software Consultancies
Enterprise-level consultancies are a strong option for enterprise-level businesses. They have networks of thousands of developers, along with experienced consultants and project leadership, to facilitate fast development.
These consultancies price accordingly. A single senior software consultant can make upwards of $200,000 per year, and projects leveraging enterprise-level software teams can easily run costs of millions of dollars in a few short months.
While their output is rapid and results are typically high-quality, enterprise-class software development packs a price tag that isn’t attainable for most businesses.
These large consultancies also tend to take a Waterfall approach to development, sinking costs into full development cycles before building a Minimal Viable Product (MVP). This approach may be suitable for companies with deep budgets but is too high-risk for small and medium businesses to take on.
Big Business Class
Big business class software development companies typically collaborate with large organizations that cannot afford the costs of enterprise-class shops but still have substantial budgets. These consultancies usually employ between 100 and 1,000 developers and have several offices worldwide. Although they are not as expensive as enterprise-class shops, they can still be quite pricey, with project rates that run anywhere from $125,000 to over $5 million.
Since these companies are well-established and popular among software developers, they attract top talent and build robust development teams. If you can afford their relatively high rates and project minimums, a Big Business Class consultancy can be a good option. However, they are generally much more expensive than mid-market software development companies.
Mid-market Class
Mid-market consultancies are an excellent option for those seeking a reasonable balance between cost and value. These consultancies usually have no more than a few hundred employees and work with small and medium-sized businesses, as well as the occasional Fortune 500 company. They specialize in projects ranging from $50,000 to $5 million in size.
However, as mid-market consultancies are smaller in size, they can be slightly more risky compared to their larger counterparts. Therefore, it is crucial to double-check their references and ensure that they have a strong track record of successfully completing several projects of a similar size and scope to yours. If you find the right mid-market consultancy with a good reputation for success, it can be an excellent choice for budget-conscious buyers who are looking for a balance of quality and cost.
Small Class
Small-class software development companies are lean businesses with few employees and low expenses. They primarily take on small, local, or regional clients and projects under $500,000.
Owners are typically members of the working team at these firms, and they may have as few as two employees working on projects. Due to smaller team sizes, these development shops typically specialize in one particular area of software development or design, like eCommerce, mobile apps, or narrow programming languages like React Native, Node.js, or Ruby on Rails.
While these shops are a great fit for niche project needs, it can be hard to land a contract with them. Due to their small team, they only need to undertake a couple of projects per year to keep the business going, and they are often booked out for months in advance.
Independent Freelance Developers
If you just need to augment your staff with a single developer or have a particularly small job, an independent technical freelancer may be the best option for your business. When selecting a freelancer, make sure to look at their portfolio and understand the kind of questions you intend to ask in their interview.
There are two primary categories of freelance developers: those who are new to the industry, having recently graduated from a boot camp or school, and seasoned professionals with ample experience and a strong reputation working outside of traditional dev shops. In the former case, you can usually benefit from lower rates and recent knowledge of the latest technologies. When it comes to veteran senior freelancers, their rates will reflect seniority but the experience they bring means that you may be able to tackle complex projects with a lower headcount.
If you’re unsure what questions to ask, consider consulting a capability-specific hiring guide, like FullStack’s React.js hiring guide.
Despite the benefits, there are some drawbacks to consider before you hire a freelance developer. For one, they’re a single individual. Because of this, they are usually specialized in one area only, such as front-end or back-end development, or design. When you work with an independent freelancer, there’s also a certain degree of risk. Despite having a signed contract, there is little guarantee that a freelancer will deliver on your project. This is particularly true for offshore and nearshore freelance developers, who may even disappear and leave you with a half-finished project that could prove difficult to complete.
Offshore and Nearshore Development Companies
With the rise in remote work, offshore and nearshore software development consultancies have gained significant traction. Offshore companies are those that use primarily overseas development teams, often in Eastern Europe, India, and Southeast Asia. Nearshore software consultancies, in contrast, work with primarily South and Central American developers.
In both cases, these consultancies are typically large organizations with thousands of developers distributed across their region. Their rates are likely low—sometimes as low as $2,160 USD per month, roughly $14 per hour, in places like Vietnam. Nearshore development wages are typically slightly higher, around $44 to $82 for Central and South American developers. Total project cost can range from $10,000 to $1M in either case, depending on project scope and cost.
Offshore development can be cost-effective but also very risky if not properly managed. Many offshore and nearshore software development projects fail, especially if the company hiring these services isn’t familiar with custom software development processes.
One solution is to hire a US-based consultancy or US-based project leadership team to manage the nearshore project. This alleviates most of the management and communication difficulties and balances efficacy and cost efficiency.
2024 Software Development Company Estimated Project Cost Comparison
2024 Software Developer Hourly Rate Guide
Regardless of a software development company’s size or scale, you can expect certain rates from individual contributors. Location and seniority, as well as specificity of skills, can impact hourly rates for developers.
Developer Seniority and Hourly Rates
Developers and other technical experts have varying degrees of experience. Their hourly rates will reflect this. More senior developers offer more value in certain project areas: They have the necessary experience to troubleshoot code issues, understand broader problems and dependencies, and lead teams of more junior developers.
Principal developer rates will be the highest. These developers typically have over a decade of experience not only building software but also working in leadership roles. Your principal developer will guide more junior developers and find solutions that less experienced engineers may not have considered.
Junior developers offer affordable rates but may need supervision from more experienced developers to be effective in their roles.
Nearshore vs US Developer Hourly Rates
Developer hourly rates are influenced by the cost of living and labor market in their region. As such, hiring nearshore developers in Mexico, Central America, and South America, sometimes called “nearshore” developers, is often more affordable than hiring US teams.
That said, communication difficulties can arise from using distributed, long-distance teams. To improve team communication, consider hiring US-based technical project leadership.
2024 Developer Hourly Rate Comparison1
The following table compares the ranges you can expect to see for development talent based on current market rates. We compiled the data below by comparing hourly rates for more than 500 technical experts in the US and Latin America. When looking to hire US and nearshore developers, consider these ranges.
1 Based on FullStack’s proprietary data comparing the collected rates of 500+ independent technical experts
Conclusion
As you explore the possibilities for staffing your 2024 software development project, keep the above rates in mind. For end-to-end solutions for your custom software development project, check out FullStack Labs. To work with pre-vetted on- and nearshore development talent, head to FullStack Talent to learn more.